24-01-2018

In 2017, the Chinese Government has made a strong push for its "coal to gas" conversion policy in Beijing, Tianjin and Heibei with an aim to improve the smog pollution problem. However, due to the incomplete installation of natural gas equipment, it resulted in a supply shortage in a lot of places across the region. This led to a rapid demand surge for liquefied natural gas (LNG) as an alternative. It is noteworthy that as natural gas supply in China is mainly delivered through pipeline, LNG only accounted for about 10% of the overall gas supply. As such, China’s LNG price soared to over 10,000 yuan in December 2017 within one month from 4,000 yuan in November 2017. More importantly, as we expect the natural gas supply shortage to linger, gas companies will come under rising margin pressure. In light of this, we believe gas supply is set to be the key investment theme for the gas sector in China this year. In 2017, China surpassed South Korea as the world's second largest LNG importer, with its LNG import volume rose 46% year-on-year to 38.13 million tons. Given it is cheaper to use imported gas compared to that of domestic products, we believe those gas companies owning more LNG storage facilities are set to fare better due to lower production cost which in turn helps to improve margin. All in all, as we believe "coal to gas" conversion policy will remain to be the key policy push by the Chinese Government in the next few years, we advise investors to buy into those gas stocks with LNG storage facilities as a long-term holding.

General Disclosure and Disclaimer:
Frontier Capital Management Limited (“FCM”) is a subsidiary of Frontier Financial Group (“the Group”). It is regulated and licensed by Hong Kong Securities and Futures Commission, also is an Exchange Participant of The Stock Exchange of Hong Kong Limited, and a Direct Clearing Participant of Hong Kong Securities Clearing Company Limited.
The information contained in this website is for informational purposes, and does not intend to recommend, invite, offer, or confirm of any terms. Based on the sources that are believed to be reliable, FCM attempts to provide accurate, complete, and up-to-date information and analysis. However, FCM cannot represent or guarantee its accuracy, completeness, or timeliness of such source and information. Before making any decision on your investment, you should weigh the provided information carefully and bear any responsibility and risk incurred. And you should seek for advice of a professional financial advisor.
The Group, its subsidiaries and connected persons may have held some of the equity securities mentioned in this article, but the Group and FCM will place your financial interests ahead of their own.